Of Minimum Wage; And Free Healthcare

Leftists claim that they care for the poor, they have a heart that beats for the disadvantaged. With this moral bullying, they beat down opposition. But market seldom cares for feelings. Leftists have destroyed the European manufacturing with their laws based on feeling, and are doing the same to the US manufacturing. In the developed world, labour laws have destroyed manufacturing and other factory based businesses, with the result that societies are fast deteriorating into a large class that is on Welfare, with no work to do but still assured of a life style that would be envy of the middle class in the third world, and above this, a super rich class that handles Financing and Banking, leads in tech innovations which then are used by the manufacturers and factories in places like China which are still able to resist the pull of labour laws. Here, discussion of the two most popular Leftist measures- minimum wage laws and Free Healthcare follows.

At Liberty.me,  Jeff Peterson II analyses both these Leftist measures in an excellent post:

“Minimum wage
Some theories never die, and this is one that doesn’t seem to want to. While there are a few arguments that are in favor of raising the minimum wage, there are two that come up rather frequently that I will help the new student of economics address which are:

  1. If a company can afford to pay below the minimum wage then they can afford the minimum wage.
  2. Increasing the minimum wage allows workers to buy back the product.

Lets look at the first assumption, which is the easiest to deal with. As many know, the minimum wage law is a regulation imposed by the State which is the lowest rate at which labor may legally be employed. The minimum wage law outlaws an employer hiring anyone else below a certain amount of dollars an hour. As Rothbard argues,

“The law says: it is illegal, and therefore criminal, for anyone to hire anyone else below the level of X dollars an hour. This means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence that there will be a large amount of unemployment.”

So, if there is a worker who is willing to work for less than the minimum wage, the law forbids them from doing so. An inevitable objection to this is that if the person is willing to work for, say, $5/hr, then the company can afford to pay the minimum wage; if the employer can hire an employee at $5/hour then the employer can the employee at minimum wage (but don’t because “exploitation” and “greed”) .The typical leftist takeaway is that pretty much all businesses, especially larger ones, can afford (and “ought”) to raise the wages of their employees to cover their basic needs. However, that’s not how labor works. You aren’t just worth any arbitrary amount. If the employee would only bring in $6/hr, then he/she would make the business money working at $5/hr, and lose it money working at minimum wage. And businesses do not last long (and thus neither do they maintain labor forces) if they are losing money on their employees. If what you can do for my company is worth $5/hr, it doesn’t follow that it’s also worth $7.25. I could profitably hire you at one price and incur losses at the other. People don’t start and run businesses to see how much they can afford to give people. If I start a business and it doesn’t make money, it’s a massive waste of my time and resources and I’ll shut it down. If my business does anything that costs more than it brings in, it’s a threat to the viability of my business. That includes hiring people I don’t need, or paying them more than their productivity can justify. In that case, the business struggles or goes under and both the employer and employee are worse off.

This may lead to your counterpart asking why anyone would want to work for that little as it would be difficult to live on that amount. First of all, what is the alternative? Second, a solution is to get rid of this compulsory non-productivity, allowing the dollar to buy more. It is rather simple. The more production, the greater the supply, thus the lower the prices of goods.

The second position we will address is that if we raise the minimum wage then workers can buy back the product which will help the economy and the business they are employed by. First of all, a firm’s strategy for raising wages is not to ensure that the employee can afford the product, that is merely incidental. It’s a pretty standard leftist argument that all the employer needs to do is pay the employee enough to “buy the product back” they are making off the line or off the shelf, etc. Hazlitt answers this argument well in Economics in One Lesson:

“How are we to know, however, precisely when labor does have “enough to buy back the product”? Or when it has more than enough? How are we to determine just what the right sum is? As the champions of the doctrine do not seem to have made any real effort to answer such questions, we are obliged to try to find the answers for ourselves.

Some sponsors of the theory seem to imply that the workers in each industry should receive enough to buy back the particular product they make. But they surely cannot mean that the makers of cheap dresses should get enough to buy back cheap dresses and the makers of mink coats enough to buy back mink coats; or that the men in the Ford plant should receive enough to buy Fords and the men in the Cadillac plant enough to buy Cadillacs.”

There is the example famously trotted out by this crowd about how Henry Ford paid his people considerably more than the industry average on the grounds that they’d be able to buy Fords. This is ridiculous on the face of it, but by this logic every employee would have had to buy several Fords per year for the revenues to justify the expense. This claim is a lie, Ford paid more than the competition because his employees were far more productive, thanks to his manufacturing innovations. This is a lot like plugging a power strip into itself. In the modern sense, there is no way it can be enough for a barista at Starbucks to make enough to buy a $2 cup of coffee. The employee would want to have something more. The only way this train of thought works is for everyone to work in industries that produce expensive goods, plus it is actually saying that by doubling labor costs, a firm is able to sell more of that good.

The result of the minimum wage is fewer people getting paid at all. Theremaining employees are getting more than previously, but there are fewer of them. Price floors like the minimum wage create surpluses (surplus labor = unemployment). That is, labor whose “owners” would like to sell it, but can’t legally do so at the market price. Unhampered prices harmonize supply and demand. If demand (of employers, but ultimately consumers) goes up and supply (labor) stays the same, either the price moves or a shortage occurs. If supply goes up and demand stays the same, either the price moves or a wasteful and harmful surplus emerges. The minimum wage means the price of labor (wages) can only move so far. Jobs like gas station attendant, movie theater usher, etc. vanish as they’re not productive enough to justify paying the legal minimum wage. As the minimum wage continues to rise, more and more productive jobs begin to vanish — any that are not productive enough to justify the new minimum. A minimum wage leads to a reduction in the demand for labor plus an increase in the supply of labor in the relevant market — which is typically the market for low-skill workers. It eliminates the ability of some workers to compete by accepting lower wages and eliminates them from the labor force. As a result, it reduces job opportunities for these workers. Many are teenagers, or spouses of breadwinners out trying to make some extra Christmas money, retirees supplementing their pensions or just staving off boredom. One problem is that those who do need to earn enough to raise a family are competing with all these people for the same jobs, because the minimum wage has eradicated the kinds of jobs teenagers, retirees etc. used to go for. With the minimum high enough, there are no more movie theater ushers, gas station attendants, rickshaw runners, elevator operators, etc, unless they can suddenly increase their productivity enough to justify such a raise. Thousands of jobs have simply vanished, going the way of the dodo, and so now we have 16 year olds and single moms competing for the same scarce lousy jobs, and simultaneously we’re trying to get rid of even those by raising the minimum wage further. And how many would-be entrepreneurs decide not to start up a new business because of concerns about taking on more labor?

The proponent of the minimum wage would like to boast that they are the champion of the poor since the intention of the minimum wage is to reduce poverty, create more jobs, and so on. Thus, if you are against the minimum wage, you are against the working class. Obviously. Yet, as can be seen, the minimum wage law provides no jobs; as per economics, those jobs are outlawed and done away with. The proponent is hurting the same worker they are trying to help.” (from the post)

Read the whole post here.